2022 (8) TMI 1409

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....sment year 2007-08. 2. The Revenue has proposed the following substantial questions of law: "(a) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is justified in upholding the decision of the Ld. CIT(Appeals) in deleting the addition of Rs. 3,66,94,613/- made on account of disallowance of expenditure incurred on capital stores and spares claimed as revenue expenditure instead of capital expenditure? (b) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is justified in upholding the decision of the Ld. CIT(Appeals) in deleting the addition of Rs. 3,66,94,613/- holding that the replacement of spares in the machineries would be allowable as revenue ....

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....ing the decisions of the Hon'ble Supreme Court and High Court, held that the replacement of parts of a larger machine would not amount to creation of a new asset or incurring of capital expenditure and it would be a revenue expenditure as the manufacturing activity is carried on by the machine comprising of various parts and where one or more of the parts is replaced, it would not amount to replacement of the whole. 6. The CIT (Appeals) relied on the decision of the Hon'ble Supreme Court in case of CIT vs. Sarvana Spinning Mills Pvt. Ltd reported in 293 ITR 201. 7. With regard to disallowance of claim under section 80IA of the Act, 1961, CIT(A) held that filing of audit report is procedural in nature and if the same is submitted befor....

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....rbine and failure of this component may lead to catastrophic damage to the machine. d. It is also seen from the Original Equipment Manufacturer namely BHEL/General Electric, USA have very categorically prescribed the operating life of the above bucket which helps to ensure trouble free operation and to avoid any catastrophic damage to the machine. e. Further it is also stated that by replacement of the buckets on completion of 48000 hours of continuous operation the power generation capacity is neither increased nor is the power plant efficiency or life of the plant gets increased. f. The cost of the Gas Turbine parts such as Buckets and Nozzles are high primary due to very special metallurgy and manufacturing pro....

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....n made by the AO is directed to be deleted. Thus the Department ground is rejected." 9. With regard to disallowance under section 80IA of the Act, 1961, the Tribunal followed the decision of this Court in case of CIT vs. Gujarat Oil and allied Industries (supra) considering the fact that the audit report was filed by the assessee before completion of the assessment. The Tribunal, relying upon the aforesaid decision of this Court, held that it is settled law that filing of tax audit report during pendency of assessment proceedings is sufficient compliance for claiming deduction under section 80IA of the Act, 1961. 10. With regard to the issue of set off of losses as per section 80IA(5) for computation of income of eligible unit, the is....